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KOLKATA/ MUMBAI: Rising yields dim the prospects of bond issuances in the current quarter as Indian companies dither on sale while investors hold back due to early signs of higher returns in the months to come. Raising dollar funds from the overseas markets, too, has turned costly following the steady appreciation of the US dollar.

Companies are avoiding longterm fund raising to keep a check on the cost, while they are exploring the short-term route more to meet immediate needs. The benchmark 10-year bond yield has risen by 28 basis points from its May 30 low of 7.13%.

"The yields on government bonds and spreads between government bonds and corporate bonds have widened as well. So any issuer finds he is paying 50-60 basis points higher than what one had anticipated a month ago.'' Investors are seeking higher yields as the US Federal Reserve has hinted that it may stop bond purchases as the economy shows signs of recovery.

Although it has said interest rates will be near zero for a long time, the spectre of cheap funds' era ending has pushed up US yields, too.

That has lifted yields across the world. Steel maker SAIL and NTPC have postponed their bond sales. Foreign institutional investors, or FIIs, have withdrawn Rs 2,270 crore on a net basis from their debt investments in the last three days, which is 20% of their net sales for the entire 2013, data released by Securities & Exchange Board of India shows.

This week, their net sales in corporate bonds was Rs2,000 crore and in commercial papers, it was Rs575 crore, resulting in further fall in bond prices and rise in yields.

"Issuers are currently in a waitand-watch mode and the reason is that the credit spreads have widened significantly for US dollar and even in the case of Singapore dollar, though it is a smaller market," said Neeraj Gambhir, head, fixed income, Nomura Capital India. But short-term fund-raising is being done by those who cannot delay. Rural Electrification Corp and Power Finance Corp mobilised Rs 1,450 crore between them in commercial papers on Wednesday.

"Rising yields do not normally deter power financiers from raising funds as they maintain a healthy margin," said Khunteta, who headed REC before joining Altius in August last year. PFC raised Rs 700 crore for 99 days at 8%, while REC raised Rs 750 crore for 164 days at 8.09%, bond dealers said. But the sliding currency and rising hedging costs will deter companies from raising funds in US dollars.

"Dollar cost is much higher, so a lot of companies are holding on to the issues, and even in borrowing in other currencies like Singapore Dollar, the dollar cost is taken into consideration," said Madhur Agarwal, head for debt capital markets at JP Morgan.

"A company with a very tight spread of 200 basis points above Libor, could borrow at 9%, but given the widening of spreads, it's unlikely that even the best rates companies could enjoy such a rate in the near term," he said.